Palo Alto Weekly

East Palo Alto's largest landlord looks to sell properties

Wells Fargo, which took over 1,800 apartment from Page Mill Properties, searches for a new buyer

by Gennady Sheyner

For residents at the Newell Court apartments in East Palo Alto, change has become the new normal over the past two years.

In the fall of 2009, the sprawling apartment complex in the city's Woodland Park neighborhood was in disarray — its trash bins overflowing, its hallways dark, its fire alarms malfunctioning, its management office shuttered and its swimming pool covered with a film of green filth. The building's owner, Palo Alto-based Page Mill Properties, had just defaulted on a $50 million balloon payment to Wells Fargo and was preparing to depart from the Woodland Park neighborhood, where it had antagonized thousands of residents by spiking rents and launching a flood of lawsuits against the city.

Over the past year and a half, Well Fargo has hired a new property manager, resolved Page Mill's lawsuits and invested about $4 million in new roofs, fresh coats of paint, spruced up landscaping and other building improvements. The swimming pools were reopened and the vacancy rates dropped. At 5 Newell Court, the hallways are now well-lighted, the management office is spotless and the fire alarms up to code. About 40 apartment buildings now sport new roofs. Some apartment complexes, including ones on Woodland and Manhattan avenues, have been repainted and refurbished.

Now, another transition is around the corner for the residents of the roughly 1,800 units. Wells Fargo has just begun its search for a new buyer and is in the process of winnowing down its pool of candidates, said Robert Maddox, a Wells Fargo manager who has been working on the East Palo Alto portfolio since the bank took ownership.

"We're going to significant effort to make sure they are transferred to a group with a long-term view toward the properties — a group that looks to be a partner to the various stakeholders and can execute on the city's long-term vision," Maddox told the Weekly.

"We're working very hard to make sure neither the city nor the residents are adversely impacted because of the sale process, which could be potentially disrupting."

The implosion of Page Mill's portfolio in East Palo Alto in the second half of 2009 had left Wells Fargo with a daunting to-do list. Just after Page Mill defaulted on its loan, the bank hired a new property manager and began tackling the safety issues at the buildings — most notably the deficient fire alarms, Maddox said. The San Mateo County Superior Court appointed a receiver, David Wald, to oversee the Woodland Park properties, and Wald brought in a new property manager to help resolve the long list of outstanding concerns — including shoddy maintenance, health-code violations and confusion over the city's rent-stabilization ordinance.

Maddox said one of the bank's prime objectives when it took over the portfolio was increasing the occupancy rate. At the time the bank took over the properties, occupancy was at 63 percent, which Maddox said was well below what the Peninsula market can accommodate. Now, the occupancy rate is at around 93 percent, Maddox said, an increase he described as "the fruits of our labor."

Some residents contend the conditions at the mostly rent-controlled apartments remain far from perfect. One resident complained at a recent meeting of the city's Rent Stabilization Board about a lack of hot water in his unit, said Matthew Fremont, a member of the board and a tenant in one of Wells Fargo's units. Another tenant told the Weekly at a recent tour that her apartment at 7 Newell Court remains drafty and that she has been having a hard time getting someone to come and fix it.

"I see things getting patched up and patched up, but not really fixed," said Annette Booker, 53, who moved into her Newell Court apartment in 2009.

Ruben Abrica, a member of the East Palo Alto City Council and a Wells Fargo tenant, credited the bank for bringing a more "collaborative" approach to the city. The relationship between the bank and the city has been collegial and Wells Fargo has done a much better job than Page Mill in communicating with tenants and making sure the buildings meet the fire- and health-code regulations.

"I think the relationship between city government and the city's biggest landlord, in this case Wells Fargo, has definitely improved," Abrica said.

But like other tenants, he said there's still plenty of room for improvement in taking care of small, day-to-day problems such as broken windows, damaged fences and malfunctioning heaters. Part of the problem, he said, has been the rapid turnover in property management (the current manager, Laramar, took over in September 2010). It's not uncommon, he said, for some of these small projects to get delayed or removed from the manager's to-do list altogether when a change occurs.

"I think they still need to pay more attention and be more responsive to the maintenance issues," Abrica said. "Not just the emergency things that we know are the most important ones, but the sort of wear-and-tear that occurs over the years.

"Those are things people deal with and live with and while they may seem minor in the big picture, they are important."

But the signs of chaos that dominated the scene in the fall of 2009 have all but disappeared and stability has generally been restored. Abrica said the bank has not disputed the city's rent-control laws and has approached the city when it's had questions. John Finau, who has lived at Newell Court for 11 years, said many of his friends moved out of the apartment complex after Page Mill took over and raised rents. But Finau, 51, decided to stick around, and he said everything is now generally back to normal.

Maddox said Wells Fargo had performed its own review of the city's rent-control ordinance (a topic of great dispute and extensive litigation between Page Mill and the city) and decided to lower rent for about 430 tenants. The average rent decrease was $115, he said. The company also resolved 136 administrative actions filed by individual tenants, a process that cost around $50,000.

"We think we had a really good outcome for the residents, who were able to continue living in the portfolio, in many cases, without the noise of administrative actions."

The most telling change for Wells Fargo officials is the feedback (or, as the case may be, the lack of feedback) they've been getting from tenants in recent months, Maddox said.

"What spoke volumes to us when we first took over and the receiver took over was that lots of residents wanted to talk about a lot of the issues going on," Maddox said. "Now, everyone is quiet. Everyone is happy."

Posted by Hmmm,
a resident of East Palo Alto
on May 27, 2011 at 4:49 pm

Yes, Observer, it was. There have been follow up articles on the fire & its cause. Thankfully, not only is MPFPD wonderful, the fire accessible & no one was hurt, but the management company & WF are a bit better than Page Mill Properties & their henchpeople. That was a reign of disorganized terror!

Posted by Another Landlord,
a resident of East Palo Alto
on May 28, 2011 at 3:55 am

With the new Rent Stabilization Ordinance only allowing rent increases of 80% of CPI they will have a hard time finding a buyer. EPA's policies towards investors will ensure that the area returns to the blight we saw in the 90's.

Posted by Hmmm,
a resident of East Palo Alto
on May 28, 2011 at 3:42 pm

Hutch, that's awful - I am so sorry to hear it. One of the duplexes I know of had a major mold issue some years ago & the residents moved out. Frankly, I doubt I could live in one of those apts - too much noise, so little privacy, as well as all of the other problems.

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